The Bank of Korea (BOK) yesterday downgraded its growth forecast for the year amid mounting evidence of an economic hit from the COVID-19 outbreak, but left its key interest rate unchanged.
The decision to maintain the seven-day repurchase rate at 1.25 percent was forecast by 10 of 28 analysts surveyed by Bloomberg. The majority had projected a 25 basis point cut to a fresh record low.
The bank now sees the economy growing 2.1 percent this year, down from a 2.3 percent projection in November last year, reflecting uncertainty over the impact of the virus.
South Korea’s won, one of the region’s weakest currencies this year, initially strengthened against the US dollar after the surprise rate hold announcement, but has since retraced gains. The yield on 10-year government bonds also steadied after earlier rising.
The bank’s decision to stand pat contrasts with the more aggressive response to the outbreak taken by Asian central banks from Indonesia to Thailand, and its own past rate cut following a virus outbreak in 2015.
South Korea’s latest data show the economy under pressure, as trade with China shrinks, sentiment plunges and the tourism industry reels. The government is working on an extra budget to beef up record spending plans for the year.
The BOK said in a statement that it would judge whether to adjust the degree of monetary policy accommodation, while “thoroughly assessing” the severity of the outbreak and its impact on the domestic economy. The bank also said it would raise the cap for cheap loans available to companies affected.
“The BOK may cut rates after the government rolls out an extra budget in March, creating the impression that the two are working closely,” Meritz Securities Co. economist Stephen Lee said. “For now, providing support for small businesses while keeping the rate on hold is the optimal choice for the BOK.”
The decision shows that BOK Governor Lee Ju-yeol is more worried about the financial risks of low rates at the moment, and is waiting for clarity on data and the extent of fiscal stimulus before acting.
Economists who projected a rate hold pointed to concerns about an overheated property market and high household debt, alongside a weakening currency.
The BOK might have also wanted to preserve its limited policy room, having cut rates twice last year.
Lee Ju-yeol said after the decision that the board judged micro policy measures targeted at vulnerable sectors to be more effective than adjusting policy rates at this stage.
He said that high household debt, and the difficulty to stabilize housing prices were among the factors behind the stand pat decision, and the board assumed the coronavirus spread would peak next month.
The governor also said that the shock from the epidemic is likely to be concentrated in the first quarter.
“The BOK just can’t decide yet whether the virus has changed Korea’s economic trajectory,” Mirae Asset Daewoo economist Park Hee-chan said. “There’s little doubt first-quarter growth will suffer, but it will take some longer-term assessment of the economy before the BOK returns to an easing mode.”
Among the rows of vibrators, rubber torsos and leather harnesses at a Chinese sex toys exhibition in Shanghai this weekend, the beginnings of an artificial intelligence (AI)-driven shift in the industry quietly pulsed. China manufactures about 70 percent of the world’s sex toys, most of it the “hardware” on display at the fair — whether that be technicolor tentacled dildos or hyper-realistic personalized silicone dolls. Yet smart toys have been rising in popularity for some time. Many major European and US brands already offer tech-enhanced products that can enable long-distance love, monitor well-being and even bring people one step closer to
Malaysia’s leader yesterday announced plans to build a massive semiconductor design park, aiming to boost the Southeast Asian nation’s role in the global chip industry. A prominent player in the semiconductor industry for decades, Malaysia accounts for an estimated 13 percent of global back-end manufacturing, according to German tech giant Bosch. Now it wants to go beyond production and emerge as a chip design powerhouse too, Malaysian Prime Minister Anwar Ibrahim said. “I am pleased to announce the largest IC (integrated circuit) Design Park in Southeast Asia, that will house world-class anchor tenants and collaborate with global companies such as Arm [Holdings PLC],”
TRANSFORMATION: Taiwan is now home to the largest Google hardware research and development center outside of the US, thanks to the nation’s economic policies President Tsai Ing-wen (蔡英文) yesterday attended an event marking the opening of Google’s second hardware research and development (R&D) office in Taiwan, which was held at New Taipei City’s Banciao District (板橋). This signals Taiwan’s transformation into the world’s largest Google hardware research and development center outside of the US, validating the nation’s economic policy in the past eight years, she said. The “five plus two” innovative industries policy, “six core strategic industries” initiative and infrastructure projects have grown the national industry and established resilient supply chains that withstood the COVID-19 pandemic, Tsai said. Taiwan has improved investment conditions of the domestic economy
Sales in the retail, and food and beverage sectors last month continued to rise, increasing 0.7 percent and 13.6 percent respectively from a year earlier, setting record highs for the month of March, the Ministry of Economic Affairs said yesterday. Sales in the wholesale sector also grew last month by 4.6 annually, mainly due to the business opportunities for emerging applications related to artificial intelligence (AI) and high-performance computing technologies, the ministry said in a report. The ministry forecast that retail, and food and beverage sales this month would retain their growth momentum as the former would benefit from Tomb Sweeping Day